Community Reinvestment Areas: Buyer beware?

by Carla Rautenberg and Deborah Van Kleef

Property tax abatements are a controversial subject, and rightfully so. When Cleveland Heights residents dutifully pay our—notoriously high—property taxes, only to learn that neighbors purchasing units in some new developments will pay a mere fraction of their high-end home’s assessed value for up to a decade, we understandably bristle. It doesn’t feel like “equal treatment under the law”—a cornerstone of our democracy. It seems more like a subsidy to already wealthy people.

According to the city, however, developers will only build in an aging inner-ring suburb with the incentive of tax abatements. New housing attracts new residents, meaning increased revenues in the form of income taxes that support city services, from which all residents benefit.

It is hard to argue with this theory when municipalities all around us (notably Cleveland, in University Circle) abate taxes on new developments. However, since abatements mean reduced dollars for public schools, cities should at the very least give careful consideration to their number and duration.

One way a municipality may offer tax abatements is to delineate certain parts of town as Community Reinvestment Areas (CRAs), subject to approval by the state of Ohio. Cleveland Heights has used CRAs to attract residential developers for decades. The largest example is the Severance CRA, which encompasses the Courtyards at Severance, the Bluestone complex of lofts and townhomes, and Severance Place, a condo conversion of the former Kaiser Permanente building. The city currently has a total of seven CRAs, some of which have been more successful than others.

In a major shift, Cleveland Heights is now applying to the state of Ohio to designate the entire city as a CRA. As currently envisioned, tax abatements would be available for newly constructed homes and commercial properties, and renovations of existing ones. Cleveland, South Euclid and Fairview Park are some other Cuyahoga County municipalities with citywide CRAs.

Seeking to understand the city’s plans, we spoke with Tim Boland, director of economic development, and Richard Wong, planning director, and listened to discussions in CH City Council Committee of the Whole meetings.

Because CRAs are complex and our space is limited, we will address just one aspect of the proposed citywide CRA: Abatements on the taxable value added to existing homes by substantial remodeling or “transformative” renovation projects. Here’s how it would work: Suppose your taxes are currently $8,000 per year. You build an addition onto your house, which raises your taxes to $9,000. All or part of that additional $1,000 could be abated for a specified number of years.

Before trying something new, it is generally worthwhile to consult someone who has already done it. Talking with Sally Martin, South Euclid housing director, we learned that incentives for renovation of existing homes rarely work. Why? Because property reassessments by Cuyahoga County seldom reflect the value added by a renovation, unless it involves a very substantial addition. Otherwise, taxes increase little, if at all, so there is nothing to abate. In Martin’s words, “In terms of being a useful tool for existing homeowners, our citywide CRA has not been utilized much.”

Offering incentives to current homeowners may be a laudable idea, but if it does not work in practice, it amounts to an empty offer.

Martin noted, “We had discussed the idea of modifying the CRA to allow ‘significant rehab’ to qualify for tax abatement. However, we have had no difficulty in getting properties fully renovated—mostly thanks to our vacant building ordinance, passed in 2010. Over 1,000 homes—more than 10 percent of our housing stock—[have] been fully renovated and brought into complete code compliance since then, without the incentive of the CRA. Now, inventory of vacant and distressed homes is very low. Those homes are quickly sold and renovated with no need for tax incentives.”

It is also worth noting the short duration of South Euclid’s CRA (five years) and the rationale for it. Keith Benjamin, community services director, told us, “We do short-term abatements to balance attracting development with protecting our school district, which receives the majority of property taxes.” Contrast this with Cleveland Heights’ current proposal for abatements of 7–15 years.

Martin observed, “For new construction, the CRA has been a tremendous help in getting projects moving. We have had 15 new in-fill homes constructed throughout the city since 2010.”

We hope Cleveland Heights will explore further before finalizing the citywide CRA. In our view, there’s still more to discover.

Carla Rautenberg and Deborah Van Kleef

Carla Rautenberg is a writer, activist and lifelong Cleveland Heights resident. Deborah Van Kleef is a musician and writer who has lived in Cleveland Heights for most of her life. Contact them at heightsdemocracy@gmail.com.